July 1st, 2008
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Today's session turned out to be a relative wash in terms of price change in the indices and based on the turmoil seen by mid-session it seems to be a blessing. It was the Nasdaq that lead the market higher following a dramatic plunge which brought the S&P near levels not seen since March of this year and the Dow since the fall of 2006.
Today it was expected to be a statistically positive session. In fact, the first trading day in July has been up 15 of the last 18. There is no doubt in my mind that this market is oversold and eventually something will have to "give". According to my sources on the floor, DT Trading, the market is lined with buy stops. Should those begin to trigger, a substantial rally could occur regardless of what any of us believe the fundamental climate to be.
On the economic front, the Institute for Supply Management reported that its index of manufacturing activity has finally surpassed the 50 mark. Remember, a number above 50 implies growth rather than contraction. However, after a knee-jerk rally on the surprise news analysts realized that much of the gain was based on higher prices for fuel and material; demand on the other hand shrunk. You can guess what happened next.
There are many that believe that we will need capitulation and fear before finally seeing a market bottom. Today's trade may or may not have met the requirement but we seem to be getting near. If you are short puts as recommended below, be patient. Time is working for us rather than against us and we will simply need a slower market (up, down or sideways) to come out of this with a profit. At the same time, I don't want to down-play the risk. Short options involve unlimited risk (in my opinion, preferential odds) and we should be careful with this.
Please note: A mini-sized Dow chart is used because it is better for charting purposes, but trade recommendations are based the full sized Dow unless otherwise noted.
Dow Recommendations...
**There is unlimited risk in naked option selling and futures trading
Position Trade -
- June 18th - I recommended to sell the Dow (big or mini) 11,000 puts for 50 or better.
- Place an order to buy this option back for 10 ticks or better
- June 27th - Buy 1 September 109 put and sell 2 103 puts, this can be done near even money. The trade makes something with the market anywhere between 10,900 and 9,700 at expiration with the max benefit being at 10,300 ($3000 in the mini and twice that much for the big). The risk is unlimited below 9,700!
Please note: A mini-Nasdaq chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.
Nasdaq Recommendation
**There is unlimited risk in naked option selling and futures trading
Position Trade -
June 30th - If you followed our recommendation you would be long a Nasdaq from 1850. I see the potential for a rally to 1949.50.
Carley Garner
Alaron Research Team
800.935.6492
info@carleygarner.com
www.CarleyGarner.com
There is substantial risk of loss in trading futures and options.
Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Alaron Trading Corp. its officers, directors, employees and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.
